Our family was fortunate enough to have a break from the heat and spend the past week up in Cannon Beach, Oregon. It was a cool, relaxing week filled with hiking, crabbing, and exploring (see picture below). We made it back home just in time for the latest heat advisory (yay!) and hope you and your loved ones are all staying safe and well hydrated!
And now onto the weekly recap:
The stock market had a very good week, although trading volume at the NYSE was on the light side all week. Not so for the Nasdaq, which saw heavier-than-average volume most days. Regardless of the volume totals, the bias was unmistakable. The stock market traded with a bullish bias.
Market participants continued to key on the notion that the economy will avoid a hard landing and that the Fed is close to being done raising interest rates. That thinking was corroborated by some key economic data this week that included the June CPI, PPI, and Import-Export Price Index, all of which showed inflation trending in a market-friendly direction, and another weekly initial claims report that was well below recession-like levels.
The CPI report was the headliner of the week. It was released before Wednesday's open and it showed a smaller-than-expected 0.2% increase in total CPI and a 0.2% increase in core CPI, which excludes food and energy. On a year-over-year basis, total CPI was up just 3.0%, versus 4.0% in May, which was the smallest increase since March 2021, and core CPI was up 4.8% versus 5.3% in May.
Treasury yields raced lower after the report and stock prices shot higher, following the trajectory Fundstrat's Tom Lee said before Monday's open that they would likely take if core CPI came in at 0.2% or less. Specifically, Mr. Lee said the S&P 500 could add as many as 100 points if the CPI report lived up to his expectations. When he made that call, the S&P 500 stood at 4,398.95. At its high on Friday, the S&P 500 hit 4,527.76.
The move from last Friday's closing level to this Friday's high was fueled by broad-based buying interest and a sizable drop in market rates. The 2-yr note yield declined 21 basis points this week to 4.73% while the 10-yr note yield dropped 23 basis points to 3.82%.
The Russell 2000 was up 4.6% for the week entering Friday's trade and settled the week up 3.6%. In turn, the Invesco S&P 500 Equal-Weight ETF (RSP) was up 3.0% for the week going into Friday and closed the week up 2.4%, matching the performance of the market-cap weighted S&P 500.
The broader market overcame a weak start for the mega cap stocks on Monday, which coincided with the Nasdaq's announcement after last Friday's close that there will be a special rebalancing of the Nasdaq 100 on July 24 to address the overconcentration in the index that has resulted from gains in the "Magnificent Seven." It will be the first special rebalancing of the Nasdaq 100 since May 2011.
The mega-cap stocks, however, overcame their slow start to the week and finished with a flourish, ultimately outperforming the S&P 500 as a group. To wit, the Vanguard Mega-Cap Growth ETF (MGK) increased 3.2% this week.
All 11 S&P 500 sectors recorded gains this week that ranged from 0.6% (energy) to 3.4% (communication services). Those gains were logged as the Q2 earnings reporting period got underway, featuring reports from Delta Air Lines (DAL), PepsiCo (PEP), JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and UnitedHealth (UNH), all of which exceeded consensus earnings expectations.
Speaking of expectations, the fed funds futures market was emboldened by the friendly CPI report on Wednesday and effectively put a lid on the prospect of any additional rate hikes after the July meeting. The fed funds futures market has priced in a 96.1% probability of a 25-basis points rate hike at the July meeting, yet the probability of a second rate hike at the September, November, or December meetings sits at just 15.4%, 29.0%, and 25.2%, respectively, according to the CME FedWatch Tool.
Several Fed officials, however, don't seem ready to close the door on a second rate hike, preferring to wait for more data to draw their conclusions. Be that as it may, the fed funds futures market and the stock market are embracing the one-and-done view.
That perspective placed some added pressure on the dollar this week, as other central banks, namely the ECB and Bank of England, are seen as having further to go with their rate-hike campaigns. The U.S. Dollar Index dropped a hefty 2.4% this week to 99.96.
That move, and the soft-landing view, led to a pickup in many commodity prices this week, including oil (+1.9%) and copper (+3.8%), which rose despite some weak data out of China that, naturally, sparked calls for more policy stimulus.
The data provided is for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. The information contained here is not guaranteed as to accuracy or completeness. All economic and performance information is historical and does not guarantee future results.
The Dow Jones Industrial Average is a price-weighted index comprising 30 widely traded blue chip U.S. common stocks. The NASDAQ Composite Index is a market-value-weighted index of all common stocks listed on the NASDAQ stock exchange. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. The MSCI Europe, Australasia, and Far East (EAFE) Index tracks the performance of publicly traded large- and mid-cap stocks of companies in those regions. The Cboe Volatility Index (VIX) shows the market’s expectation of 30-day volatility and is constructed using the implied volatilities of a wide range of S&P 500 Index options. Weekly and year-to-date figures for the VIX show percentage changes, not investment returns. The Russell 2000 Index tracks the performance of approximately 2,000 publicly traded small-cap companies in the United States. It is not possible to invest directly in an index.
The Treasury yield curve is derived from available U.S. Treasury securities trading in the market and is provided directly by the U.S. Federal Reserve. The spread measures the difference in yield between two government securities. A normal (positive) yield curve occurs when longer-term rates are higher than shorter-term rates. The opposite holds true for an inverted yield curve. Year-to-date changes in U.S. Treasury bond yields are shown in basis points (bps). One hundred basis points equals one percent.
Oil prices are represented by West Texas Intermediate (WTI) crude oil.
The G20 countries comprise a mix of the world’s largest advanced and emerging economies, representing about two-thirds of the world’s population, 85% of global gross domestic product, and over 75% of global trade.